What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-04 compared with 2021-03-12 · 148 added, 197 removed, 649 unchanged (35% of the section changed)

2 unchanged sentences

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of January 1, 2021 and December 27, 2019

Consolidated Statements of Operations for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Comprehensive Income for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Shareholders’ Equity for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Cash Flows for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and January 1, 2021

Consolidated Statements of Operations for the Years Ended December 31, 2021, January 1, 2021, and December 27, 2019

Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, January 1, 2021, and December 27, 2019

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2021, January 1, 2021, and December 27, 2019

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, January 1, 2021, and December 27, 2019

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc.

and its subsidiaries (the Company) as of January 1, 2021, and December 27, 2019, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 1, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2021 and December 27, 2019, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 12, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

and its subsidiaries (the Company) as of December 31, 2021, and January 1, 2021, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and January 1, 2021, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 4, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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We identified the measurement of progress for the purpose of revenue recognition under fixed-fee billing arrangements as a critical audit matter.

Auditing management’s assumptions to estimate total engagement revenue and cost of services for the contract performance obligations used to recognize revenue for fixed-fee billing arrangements, including the historical experience of fulfilling the performance obligations of the contract or other similar contracts, involved a high degree of subjectivity and increased audit effort.

Our audit procedures related to the Company’s revenue recognition for fixed-fee billing arrangements included the following, among others:

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During this analysis we evaluated completed contracts in order to determine if previous estimates to complete were consistent with actual hours incurred to complete the contract.

We tested the mathematical accuracy of management’s estimate to complete calculation of contract revenue by obtaining and testing the source data used in the estimation process.

We tested a sample of fixed-fee billing arrangements as follows:

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Accounts receivable and contract assets, net of allowance of $ 2,702 and $ 605

at January 1, 2021 and December 27, 2019, respectively

at December 31, 2021 and January 1, 2021, respectively

Prepaid expenses and other current assets

6 unchanged sentences

Accrued expenses and other liabilities

Contract liabilities

Operating lease liabilities

Total current liabilities

Non-current deferred tax liability, net

Deferred tax liability, net

Operating lease liabilities

5 unchanged sentences

59,631,003 and 57,600,158

shares issued at January 1, 2021 and December 27, 2019, respectively

shares issued at December 31, 2021 and January 1, 2021, respectively

Additional paid-in capital

Treasury stock, at cost, 27,609,752 and 27,425,476 shares at January 1, 2021 and December 27, 2019, respectively

Accumulated deficit

Treasury stock, at cost, 28,357,145 and 27,609,752 shares at December 31, 2021 and January 1, 2021, respectively

Retained earnings (accumulated deficit)

Accumulated other comprehensive loss

52 unchanged sentences

Balance at December 28, 2018

Issuance of common stock

Issuance of common stock, net

Treasury stock purchased

5 unchanged sentences

Balance at December 27, 2019

Issuance of common stock

Issuance of common stock, net

Treasury stock purchased

4 unchanged sentences

Foreign currency translation

Balance at December 27, 2019

Issuance of common stock

Balance at January 1, 2021

Issuance of common stock, net

Treasury stock purchased

4 unchanged sentences

Foreign currency translation

Balance at January 1, 2021

Balance at December 31, 2021

The accompanying notes are an integral part of the consolidated financial statements.

3 unchanged sentences

Cash flows from operating activities:

Less loss from discontinued operations, net of taxes

Plus loss from discontinued operations, net of taxes

Net income from continuing operations

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Changes in assets and liabilities, net of acquisition:

Decrease (increase) in accounts receivable and contract assets

Decrease (increase) in prepaid expenses and other assets

(Decrease) increase in accounts payable

(Increase) decrease in accounts receivable and contract assets

(Increase) decrease in prepaid expenses and other assets

Increase (decrease) in accounts payable

Increase (decrease) in accrued expenses and other liabilities

Net cash provided by operating activities of continuing operations

Net cash (used in) provided by operating activities of discontinued operations

Net cash used in operating activities of discontinued operations

Net cash provided by operating activities

12 unchanged sentences

Effect of exchange rate on cash

Net increase (decrease) in cash

Net (decrease) increase in cash

Cash at beginning of year

5 unchanged sentences

Shares issued to sellers and key personnel of Jibe Consulting and Aecus Limited

Dividend declared during the year and paid the following year

The accompanying notes are an integral part of the consolidated financial statements.

11 unchanged sentences

The Company’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31.

Fiscal years 2020, 2019, and 2018 ended on January 1, 2021, December 27, 2019, and December 28, 2018, respectively.

Fiscal years 2021, 2020, and 2019 ended on December 31, 2021, January 1, 2021, and December 27, 2019, respectively.

References to a year included in the consolidated financial statements refer to a fiscal year rather than a calendar year.

The Company considers all short-term investments with maturities of three months or less to be cash equivalents to the extent that it places its temporary cash investments with high credit quality financial institutions.

At times, such investments may be in excess of the F.D.I.C.

The Company considers depository accounts and all short-term investments with maturities of three months or less to be cash equivalents to the extent that it places its temporary cash investments with high credit quality financial institutions.

At times, such balances may be in excess of the F.D.I.C.

insurance limits.

5 unchanged sentences

The Company’s Board of Directors has been gradually increasing the dividend over the years.

In 2018, 2019 and 2020, the Company’s Board of Directors approved an increase in the annual dividend to $ 0.34 per share, $ 0.36 per share, and $ 0.38 per share, respectively.

In addition, during 2020, the Company’s Board of Directors approved the increase in the frequency of dividend payments to a quarterly basis.

During 2020, the Company funded one semi-annual dividend that was declared in 2019 and three quarterly dividends declared in 2020, including the dividend declared in the fourth quarter of 2020.

In 2019, 2020 and 2021, the Company’s Board of Directors approved an increase in the annual dividend to $ 0.36 per share, $ 0.38 per share, and to $ 0.40 per share, respectively.

During 2021, the Company funded four quarterly dividend payments.

Subsequent to 2021, the Company’s Board of Directors approved the increase in the annual dividend from $0.40 to $ 0.44 per share to be paid on a quarterly basis and declared the first quarterly dividend of 2022.

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The carrying amount and activity of goodwill attributable to The Hackett Group and Hackett Technology Solutions was as follows (in thousands):

Hackett Technology

Balance at December 27, 2019

Foreign currency translation adjustment

Balance at December 27, 2019

Foreign currency translation adjustment

Balance at January 1, 2021

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

Foreign currency translation adjustment

Balance at December 31, 2021

Finite lived intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset may not be fully recoverable.

3 unchanged sentences

Other intangible assets arise from business combinations and consist of customer relationships, customer backlog and trademarks that are amortized on a straight-line or accelerated basis over periods of up to five years .

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

Other intangible assets, included in other assets in the accompanying consolidated balance sheets, consist of the following (in thousands):

2 unchanged sentences

Foreign currency translation adjustment

All of the Company’s intangible assets are expected to be fully amortized by the end of 2022.

For the years ended January 1, 2021, December 27, 2019 and December 28, 2018, the Company recorded $ 1.0 million, $ 1.0 million and $ 2.4 million of amortization expense, respectively.

The estimated future amortization expense of intangible assets as of January 1, 2021 is as follows:

$ 0.9 million in 2021 and $ 0.3 million in 2022.

See Note 15 for further discussion.

All of the Company’s intangible assets are expected to be fully amortized in 2022.

For the years ended December 31, 2021, January 1, 2021 and December 27, 2019, the Company recorded $ 1.0 million of amortization expense in each year.

The estimated future amortization expense of intangible assets as of December 31, 2021 is $ 0.2 million in 2022.

Revenue Recognition

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The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs.

2 unchanged sentences

Customers are typically invoiced at the inception of the contract, with net thirty-day terms, however client terms are subject to change.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.

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Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.

The agreements entered into in connection with a project, whether time and materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice.

In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the

In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period.

These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients.

These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

The payment terms and conditions in the Company’s customer contracts vary.

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Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement.

See Note 3 for the accounts receivable and contract asset balances and see Note 5 for the contract liability balances.

During the 12 months ended January 1, 2021, the Company recognized $ 9.2 million of revenue as a result of changes in the contract liability balance, as compared to $ 7.7 million for the twelve months ended December 27, 2019.

The following table reflects the Company’s disaggregation of revenue before reimbursements from continuing operations for the twelve months ended January 1, 2021 and December 27, 2019:

See Note 3 for the accounts receivable and contract asset balances.

During the 12 months ended December 31, 2021, the Company recognized $ 8.3 million of revenue as a result of changes in the contract liability balance, as compared to $ 9.2 million for the twelve months ended January 1, 2021.

The following table reflects the Company’s disaggregation of revenue before reimbursements from continuing operations for the twelve months ended December 31, 2021, and January 1, 2021:

Software license sales

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Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations.

As of January 1, 2021 and

As of December 31, 2021, and January 1, 2021, the Company had $ 1.6 million, and $ 1.5 million, respectively, of deferred commissions, of which $ 1.0 million and $ 1.5 million was amortized during the 12 months ended December 31, 2021 and January 1, 2021, respectively.

THE HACKETT GROUP, INC.

1 unchanged sentence

Basis of Presentation and General Information (continued)

December 27, 2019, the Company had $ 1.5 million, and $ 1.6 million, respectively, of deferred commissions, of which $ 1.5 million and $ 1.4 million was amortized during the 12 months ended January 1, 2021 and December 27, 2019, respectively.

No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

26 unchanged sentences

Basis of Presentation and General Information (continued)

As of January 1, 2021 and December 27, 2019, the Company did not have any carrying amounts of the major classes of assets and liabilities presented in discontinued operations in its consolidated balance sheet.

As of December 31, 2021, and January 1, 2021, the Company did not have any carrying amounts of the major classes of assets and liabilities presented in discontinued operations in its consolidated balance sheet.

The following table presents the gain and loss results for the Company’s discontinued operations (in thousands):

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The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable and accrued expenses and other liabilities.

As of January 1, 2021 and December 27, 2019, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

As of December 31, 2021 and January 1, 2021, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt.

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Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test.

For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable.

In December 2019, the F ASB issued ASU 2019-12 providing guidance to reduce complexity in certain areas of accounting for income taxes.

The new guidance is effective fiscal years beginning after December 15, 2020 .

The adoption did not have a material impact on the Company’s consolidated financial statements.

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Accounts receivable

Contract assets

Contract assets (unbilled revenue)

Allowance for doubtful accounts

Accounts receivable as of January 1, 2021 and December 27, 2019, is net of uncollected advanced billings.

Contract assets as of January 1, 2021 and December 27, 2019 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

Accounts receivable as of December 31, 2021, and January 1, 2021, is net of uncollected advanced billings.

Contract assets as of December 31, 2021, and January 1, 2021 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

Property and Equipment, net

2 unchanged sentences

Less accumulated depreciation

Depreciation expense for the years ended January 1, 2021, December 27, 2019, and December 28, 2018 was $ 3.5 million, $ 3.2 million, and $ 2.5 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

Depreciation expense for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, was $ 3.4 million, $ 3.5 million, and $ 3.2 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

Accrued Expenses and Other Liabilities

3 unchanged sentences

Accrued bonuses

Accrued dividend payable

Restructuring liability

Contract liability

Accrued sales, use, franchise and VAT tax

3 unchanged sentences

Total accrued expenses and other liabilities

As a result of the tax deduction related to the exercise of the 2.9 million SARs in 2021, the Company has recorded an income tax receivable of $ 3.4 million to prepaid expenses and other current assets on the consolidated balance sheet.

THE HACKETT GROUP, INC.

7 unchanged sentences

During 2019, the Company recorded restructuring charges of $ 3.3 million, which was primarily related to the reduction of staff in Europe and Australia.

As of December 27, 2019, the Company had $ 1.6 million of remaining commitments related to the restructuring charge.

As a result of the decline in the Europe market and management’s efforts to focus on resources within the markets that provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining investment in its Hackett Institute Enterprise Analytics Program was impaired and recorded an asset impairment of $ 1.2 million.

In addition, as a result of the decline in the Europe market and management’s efforts to focus on resources within the markets that provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining investment in its Hackett Institute Enterprise Analytics Program was impaired and recorded an asset impairment of $ 1.2 million.

See Note 7 for further discussion.

The Company did no t record any restructuring charges or asset impairments in 2021.

The following table summarizes the costs incurred in connection with the 2020 and 2019 restructuring charges and asset impairments (in thousands):

10 unchanged sentences

Restructuring charge

Accrual balance at December 27, 2019

Restructuring charge

Accrual balance at January 1, 2021

Accrual balance at December 31, 2021

Lease Commitments

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Lease Commitments (continued)

The weighted average remaining lease term is 1.6 years.

The weighted average remaining lease term is 1.0 year.

The weighted average discount rate utilized is 4 %.

1 unchanged sentence

This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to the Company’s lease payments in a similar economic environment.

For the twelve months ended January 1, 2021, the Company paid $ 2.6 million from operating cash flows for operating leases.

For the twelve months ended December 31, 2021, the Company paid $ 2.6 million from operating cash flows for operating leases.

The Company has operating lease agreements for its premises that expire on various dates through December 2024.

Lease expense for the years ended January 1, 2021, December 27, 2019 and December 28, 2018, was $ 2.5 million, $ 2.8 million and $ 2.8 million, respectively.

The components of lease expense during the fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018 all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of January 1, 2021, are as follows (in thousands):

As of January 1, 2021, the Company does not have any additional operating leases that have not yet commenced that create significant rights and obligations for the Company.

In addition, in consideration of the COVID-19 pandemic and the changing nature of the Company’s use of office space for its workforce as part of the office lease analysis the Company conducted in 2020, the Company exercised its option to eliminate the remaining five years of the London lease.

See Note 6 for further discussion.

Lease expense for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, was $ 1.0 million, $ 2.5 million and $ 2.8 million, respectively.

The components of lease expense during the fiscal years ended December 31, 2021, January 1, 2021, and December 27, 2019, all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of December 31, 2021, are as follows (in thousands):

As of December 31, 2021, the Company does not have any additional operating leases that have not yet commenced that create significant rights and obligations for the Company.

Credit Facility

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The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement.

As of January 1, 2021, the applicable margin percentage was 1.50 % per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75 % per annum, in the case of base rate advances.

The interest rate of the commitment fee as of January 1, 2021 was 0.125 %.

As of December 31, 2021, the applicable margin percentage was 1.50 % per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75 % per annum, in the case of base rate advances.

The interest rate of the commitment fee as of December 31, 2021, was 0.125 %.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.

As of January 1, 2021, the Company was in compliance with all covenants.

The Company incurred $ 21 thousand of incremental debt issuance costs in 2020 as a result of the credit agreement extension.

As of December 31, 2021, the Company was in compliance with all covenants.

The Company incurred $ 4 thousand and $ 21 thousand of incremental debt issuance costs in 2021 and 2020 as a result of the credit agreement discussions and the 2020 extension.

No debt issue costs were incurred in 2019.

These costs are amortized over the remaining life of the Credit Facility, the current portion of which are included in Prepaid expenses and other current assets and the long term portion of which are included in Other assets in the accompanying consolidated balance sheet.

As of December 31, 2021, the Company had $ 47 thousand of debt issuance costs remaining which will be amortized over the remaining life of the Credit Facility.

These costs are included in Prepaid expenses and other current assets in the accompanying consolidated balance sheet.

THE HACKETT GROUP, INC.

1 unchanged sentence

Credit Facility (continued)

As of January 1, 2021 and December 27, 2019, the Company did no t have any outstanding debt balance on the Revolver, excluding debt issuance costs of $ 0.1 million.

As of December 31, 2021, and January 1, 2021, the Company did no t have any outstanding debt balance on the Revolver.

During fiscal 2019, the Company borrowed $ 1.0 million and paid down $ 7.5 million, leaving no outstanding balance as of December 27, 2019.

2 unchanged sentences

While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most probable outcome.

The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances.

The Company adjusts these reserves, as well as the related interest, in the light of changing facts and circumstances.

The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution.

The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue Service for years through 2017 and all significant state, local and foreign matters have been concluded for years through 2016.

In the first quarter of 2017, the IRS commenced an examination of the Company’s U.S.

income tax return for fiscal year 2014.

The examination was finalized in 2019 with no changes to the Company’s reported tax.

The components of income before income taxes from continuing operations are as follows (in thousands):

Income from continuing operations before income

The components of income tax expense (benefit) from continuing operations are as follows (in thousands):

The components of income tax expense from continuing operations are as follows (in thousands):

Current tax expense

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A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations is as follows:

U.S statutory income tax expense rate

statutory income tax expense rate

State income taxes, net of federal income tax

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Net deferred income tax liability

The 2017 Tax Act made a significant number of changes to existing U.S.

Internal Revenue Code, including a permanent reduction of the U.S.

corporate income tax rate from 35 % to 21 % for tax years beginning after December 31, 2017, and it also provides for a one-time transition tax on certain unremitted foreign earnings (the “Transition Tax”).

As a result, the Company recorded a provisional income tax benefit of $ 4.0 million related to the re-measurement of deferred tax assets and liabilities resulting from the reduction of the federal corporate tax rate.

The Company performed a preliminary analysis of its post-1986 earnings and profits of its foreign subsidiaries and estimated an overall accumulated net deficit, therefore no amounts were recorded relative to the Transition Tax.

In accordance with Staff Accounting Bulletin (“SAB”) No.

118, the Company finalized the deferred tax and Transition Tax calculations during the allowed measurement period in 2018.

As a result, the Company did not make any changes to the provisional tax amounts recorded in 2017.

The SEC staff issued Staff Accounting Bulletin ("SAB") No.

118 in December 2017.

The SAB provides guidance on accounting for the tax effects of the 2017 Tax Act where uncertainty exists and it provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the related accounting under U.S.

In accordance with this guidance, the Company recorded provisional amounts for those specific income tax effects of the 2017 Tax Act for which a reasonable estimate could be determined.

As of January 1, 2021, the Company had $ 0.9 million of U.S.

As of December 31, 2021, the Company had $ 0.9 million of U.S.

state net operating loss carryforwards.

Additionally, at January 1, 2021, the Company had $ 11.6 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia.

Additionally, at December 31, 2021, the Company had $ 7.0 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia.

A significant amount of the foreign net operating losses may be carried forward indefinitely.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

In determining the need for valuation allowances the Company considers evidence such as history of losses and general economic conditions.

At January 1, 2021 and December 27, 2019, the Company had a valuation allowance of $ 1.6 million to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized.

The undistributed earnings in foreign subsidiaries at January 1, 2021 was approximately $ 3.9 million.

At December 31, 2021, and January 1, 2021, the Company had a valuation allowance of $ 1.6 million to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized.

The undistributed earnings in foreign subsidiaries as of December 31, 2021, was approximately $ 5.4 million.

The Company has historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad.

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017.

The 2017 Tax Act made a significant number of changes to existing U.S.

Internal Revenue Code, including a one-time transition tax on certain unremitted foreign earnings (the “Transition Tax”).

The 2017 Tax Act also implements a territorial system, whereby certain foreign subsidiary earnings can be repatriated to the U.S with no federal tax.

The Company finalized its Transition Tax calculation during the allowed measurement period in 2018 and computed an overall accumulated net deficit, thus no amounts were recorded relative to the Transition Tax.

Penalties and tax-related interest expense are reported as a component of income tax expense.

For the years ended January 1, 2021 and December 27, 2019, the total amount of accrued income tax-related interest and penalties was $ 167 thousand and $ 155 thousand, respectively.

For the years ended December 31, 2021, and January 1, 2021, the total amount of accrued income tax-related interest and penalties was $ 179 thousand and $ 167 thousand, respectively.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

The Company prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The following table sets forth the detail and activity of the ASC 740 liability during the years ended January 1, 2021 and December 27, 2019, (in thousands):

The following table sets forth the detail and activity of the ASC 740 liability during the years ended December 31, 2021 and January 1, 2021 (in thousands):

Beginning balance

1 unchanged sentence

Ending balance

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

As of January 1, 2021 and December 27, 2019, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $ 0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

As of December 31, 2021, and January 1, 2021, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $ 0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The reversal of ASC 740-10 tax liabilities as of January 1, 2021 and December 27, 2019 would have a favorable impact on the effective tax rate in future period.

The reversal of ASC 740-10 tax liabilities as of December 31, 2021 and January 1, 2021 would have a favorable impact on the effective tax rate in future period.

Stock Based Compensation

Total share-based compensation included in net income for the years ended January 1, 2021, December 27, 2019, and December 28, 2018 is as follows:

Total share-based compensation included in net income for the years ended December 31, 2021, January 1, 2021, and December 27, 2019, is as follows:

Restricted stock units

Common stock subject to vesting requirements

The number of shares available for future issuance under the Company's stock plans as of January 1, 2021 were 2,052,508 .

The number of shares available for future issuance under the Company's stock plans as of December 31, 2021, were 1,162,406 .

The Company issues new shares as they are required to be delivered under the plan.

2 unchanged sentences

The options generally vest ratably over four years , based on continued employment, with a maximum term of ten years .

Stock option activity under the Company’s stock option plans for the year ended January 1, 2021 is summarized as follows:

Stock option activity under the Company’s stock option plans for the year ended December 31, 2021, is summarized as follows:

Option Shares

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Intrinsic Value

Outstanding as of December 27, 2019

Forfeited or expired

Outstanding as of January 1, 2021

Exercisable at January 1, 2021

A summary of the Company’s stock option activity for the years ended December 27, 2019 and December 28, 2018 was as follows:

December 27, 2019

Forfeited or expired

Outstanding as of December 31, 2021

Exercisable at December 31, 2021

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation (continued)

A summary of the Company’s stock option activity for the years ended January 1, 2021, and December 27, 2019, was as follows:

January 1, 2021

December 27, 2019

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Exercisable at end of year

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Based Compensation (continued)

The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model.

The determination of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and the risk-free rate of interest.

SAR activity for the year ended January 1, 2021 was as follows:

The intrinsic value of the options that were exercised in 2021 was $ 2.4 million.

SAR activity for the year ended December 31, 2021, was as follows:

Number of SARs

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Weighted Average Remaining Contractual Term

Outstanding as of December 27, 2019

Outstanding as of January 1, 2021

Exercisable at January 1, 2021

Outstanding as of December 31, 2021

Exercisable at December 31, 2021

The intrinsic value of the SARs that were exercised in 2021 was $ 46.1 million.

The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model.

The determination of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and the risk-free rate of interest.

Restricted Stock Units

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The amount of expense relating to the restricted stock units is based on the closing market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable requisite service period.

Restricted stock unit activity for the year ended January 1, 2021, was as follows:

Restricted stock unit activity for the year ended December 31, 2021, was as follows:

Weighted Average

Nonvested balance as of December 27, 2019

Nonvested balance as of January 1, 2021

The Company recorded restricted stock units based compensation expense of $ 8.7 million, $ 6.8 million and $ 7.1 million in 2020, 2019, and 2018 respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair value of the stock on the grant date.

As of January 1, 2021, there was $ 11.1 million of total restricted stock unit compensation expense related to the unvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.3 years.

The Company accounts for certain restricted stock units under liability accounting as a result of the fixed monetary amount and a variable number of shares that will be issued.

Nonvested balance as of December 31, 2021

THE HACKETT GROUP, INC.

1 unchanged sentence

Stock Based Compensation (continued)

The Company recorded restricted stock units-based compensation expense of $ 9.7 million, $ 8.7 million and $ 6.8 million in 2021, 2020, and 2019 respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair value of the stock on the grant date.

As of December 31, 2021, there was $ 9.2 million of total restricted stock unit compensation expense related to the unvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.2 years.

The Company accounts for certain restricted stock units under liability accounting as a result of the fixed monetary amount and a variable number of shares that will be issued.

Common Stock Subject to Vesting Requirements

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Compensation expense was based on the fair value of the Company’s common stock at the time of grant and is recognized on a straight-line basis.

The activity for common stock subject to vesting requirements for the year ended January 1, 2021 was as follows:

The activity for common stock subject to vesting requirements for the year ended December 31, 2021, was as follows:

Number of Shares

2 unchanged sentences

Weighted Average

Nonvested balance as of December 27, 2019

Nonvested balance as of January 1, 2021

Nonvested balance as of December 31, 2021

Common stock subject to vesting requirements of $ 1.0 million was issued in 2019 in relation to acquisitions.

These shares are subject to up to a four-year vesting period.

The Company recorded compensation expense of $ 1.1 million, $ 1.0 million and $ 2.0 million, during the years ended January 1, 2021, December 27, 2019, and December 28, 2018 respectively, related to common stock subject to vesting requirements.

As of January 1, 2021, there was $ 0.5 million of total stock-based compensation expense related to common stock granted subject to vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 0.9 years.

The Company recorded compensation expense of $ 0.4 million, $ 1.1 million and $ 1.0 million, during the years ended December 31, 2021, January 1, 2021, and December 27, 2019, respectively, related to common stock subject to vesting requirements.

As of December 31, 2021, there was $ 27 thousand of total stock-based compensation expense related to common stock granted subject to vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 1.8 years.

Shareholders’ Equity

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For plan years 2021, 2020 and 2019, 41,504 shares, 56,679 shares and 51,548 shares, respectively, were issued for total proceeds of $ 0.8 million in each year.

On February 17, 2022, the Company’s Board of Directors approved an extension of the Employee Stock Purchase Plan to July 1, 2028 from July 1, 2023 and added an additional 250,000 shares of common stock, subject to the Company’s shareholders approval in May 2022.

Treasury Stock

On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $ 5.0 million of the Company’s common stock.

Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an additional $ 142.2 million of the Company’s common stock, thereby increasing the total program size to $ 147.2 million as of January 1, 2021.

As of January 1, 2021, the Company had affected cumulative purchases under the plan of $ 142.9 million, leaving $ 4.3 million available for future purchases.

Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an additional $ 162.2 million of the Company’s common stock, thereby increasing the total program size to $ 167.2 million as of December 31, 2021.

As of December 31, 2021, the Company had affected cumulative purchases under the plan of $ 155.9 million, leaving $ 11.2 million available for future purchases.

There is no expiration of the authorization.

4 unchanged sentences

During 2021 and 2020, the Company repurchased 749 thousand and 184 thousand shares of its common stock, respectively, at an average price per share of $ 17.42 and $ 12.84 , respectively, for a total cost of $ 13.0 million and $ 2.4 million, respectively.

As of January 1, 2021 and December 27, 2019 the Company had repurchased 27.6 million and 27.4 million shares of its common stock, respectively, at an average price of $ 5.19 per share and $ 5.14 per share, respectively.

As of December 31, 2021, and January 1, 2021, the Company had repurchased under the plan inception to date 28.3 million and 27.6 million shares of its common stock, respectively, at an average price of $ 5.51 per share and $ 5.19 per share, respectively.

During 2021, the Company repurchased 24 thousand shares of its common stock from members of its Board of Directors for $ 0.4 million or $ 16.05 per share.

3 unchanged sentences

These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf.

In 2020, 139 thousand shares were withheld and not issued for a cost of $ 2.1 million bringing the total cumulative cash used to repurchase stock in 2020 to $ 4.5 million.

In 2021, 1.1 million shares were withheld and not issued for a cost of $ 21.6 million bringing the total cumulative cash used to repurchase stock in 2021 to $ 34.6 million, which includes the net exercise of the SARs and options as discussed in Note 10.

In 2020, 139 thousand shares were withheld and not issued for a cost of $ 2.1 million, bringing the total cumulative cash used to repurchase stock in 2020 to $ 4.5 million.

1 unchanged sentence

In December 2012, the Company announced an annual dividend of $ 0.10 per share to be paid semi-annually.

The Company has periodically increased the annual dividend since 2012.

In 2018, the Company increased the annual dividend to $0.34 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $ 10.8 million each paid to shareholders of record on June 29, 2018 and December 21, 2018 , respectively.

In 2019, the Company increased the annual dividend to $ 0.36 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $ 11.2 million each paid to shareholders of record on July 10, 2019 , and December 20, 2019 , respectively.

1 unchanged sentence

In 2020, the Company increased the annual dividend to $ 0.38 per share to be paid on a quarterly basis which resulted in aggregate dividends of $ 9.1 million paid to shareholders of record on June 30, 2020 , September 25, 2020 , and December 18, 2020 , all of which were paid in 2020 .

In 2021, the Company increased the annual dividend to $ 0.40 per share to be paid on a quarterly basis which resulted in aggregate dividends of $ 12.9 million paid to shareholders of record on March 26, 2021 , June 25, 2021 , September 24, 2021 , and December 17, 2021 , all of which were paid in 2021 .

These dividends were paid from U.S.

domestic sources and are accounted for as an increase to accumulated deficit.

Subsequent to January 1, 2021, the Company increased its annual dividend 5 % to $ 0.40 per share to be paid on a quarterly basis and declared its first quarterly dividend for 2021 of $ 0.10 per share for shareholders on March 26, 2021 to be paid on April 8, 2021 .

Subsequent to December 31, 2021, the Company increased its annual dividend by 10 % to $ 0.44 per share to be paid on a quarterly basis and declared its first quarterly dividend for 2022 of $ 0.11 per share for shareholders on March 25, 2022 , to be paid on April 8, 2022 .

The Company maintains a 401(k) plan covering all eligible employees.

1 unchanged sentence

The Company may make discretionary contributions on an annual basis.

Effective April 1, 2018, the Company made matching contributions of 40 % of employee eligible contributions up to 6 % of their gross salaries.

During fiscal year 2017, the Company made matching contributions of 25 % of employee contributions up to 6 % of their gross salaries.

The Company’s matching contributions were $ 0.8 million, $ 0.8 million and $ 1.1 million for the fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018, respectively.

The Company makes matching contributions of 40 % of employee eligible contributions up to 6 % of their gross salaries.

The Company’s matching contributions were $ 0.8 million for each of the fiscal years ended December 31, 2021, January 1, 2021 and December 27, 2019, respectively.

Transactions with Related Parties

During the year ended January 1, 2021 the Company repurchased 37 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $ 0.7 million, or $ 17.43 per share.

During the year ended December 31, 2021 the Company repurchased 24 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $ 0.4 million, or $ 16.05 per share.

Subsequent to the year ended January 1, 2021, the Company repurchased 24 thousand shares of the Company’s stock from members of its Board of Directors for a total of $ 0.4 million, or $ 16.05 per share.

During the year ended January 1, 2021, the Company repurchased 37 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $ 0.7 million, or $ 17.43 per share.

Subsequent to the year ended December 31, 2021, the Company repurchased 31 thousand shares of the Company’s stock from members of its Board of Directors for a total of $ 0.6 million, or $ 20.50 per share.

The proceeds from the sale of these shares were used primarily to cover estimated tax liabilities associated with previously vested restricted stock units.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Jibe Consulting

Effective May 1, 2017 , the Company acquired certain assets and liabilities of Jibe Consulting, Inc.

(“Jibe”), a U.S.- based Oracle E-Business Suite (“EBS”) and Oracle Cloud Business Application implementation firm.

The acquisition of Jibe enhanced the Company’s Cloud Application capabilities and strongly complemented its market leading EPM transformation and technology implementation group.

The sellers’ purchase consideration was $ 5.4 million in cash, not subject to vesting, and $ 3.6 million in shares of the Company’s common stock, subject to vesting.

The initial cash consideration was funded from borrowings under the Revolver.

The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period.

In addition, the sellers earned contingent consideration of $ 0.7 million of cash and $ 1.0 million of equity based on the achievement of performance targets over the 18 months following the closing.

The cash related to the contingent consideration, which was paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration.

The cash related to the contingent consideration, which was paid to the key employees, is subject to service vesting and was accounted for as compensation expense.

Due to the projected earnout results, during the first quarter of 2019, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit of $ 1.2 million in earnings from operations on the consolidated statement of operations related to the contingent earnout liability for the Jibe acquisition.

During the fourth quarter of 2019, the contingent liabilities were settled.

Geographic and Service Group Information

8 unchanged sentences

Total long-lived assets

As of January 1, 2021 and December 27, 2019, foreign assets included $ 15.3 million and $ 14.6 million, respectively, of goodwill related to acquisitions, in fiscal years 2005, 2009 and 2017.

As of December 31, 2021 and January 1, 2021 foreign assets included $ 15.1 million and $ 15.3 million, respectively, of goodwill related to acquisitions, in fiscal years 2005, 2009 and 2017.

THE HACKETT GROUP, INC.

1 unchanged sentence

Quarterly Financial Information (unaudited)

The following tables present unaudited supplemental quarterly financial information for the years ended January 1, 2021 and December 27, 2019 (in thousands, except per share data):

The following tables present unaudited supplemental quarterly financial information for the years ended December 31, 2021 and January 1, 2021 (in thousands, except per share data):

Quarter Ended

April 2, 2021

October 1, 2021

December 31, 2021

Revenue from continuing operations before reimbursements

Operating income (1)

Income from continuing operations before income taxes (1)

Loss from discontinued operations (2)

Net income (1)

Basic net income per common share (3):

Income per common share from continuing operations

Loss per common share from discontinued operations (2)

Basic net income per common share

Diluted net income (loss) per common share (3):

Income per common share from continuing operations

Loss per common share from discontinued operations (2)

Diluted net income per common share

Quarter Ended

March 27, 2020

15 unchanged sentences

Diluted net income (loss) per common share

Quarter Ended

March 29, 2019

June 28, 2019

September 27, 2019

December 27, 2019

Revenue from continuing operations before reimbursements

Operating income

Income from continuing operations (4)

Income (loss) from discontinued operations (2)

Net income (4)

Basic net income per common share (3)

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Basic net income per common share

Diluted net income per common share (3)

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Diluted net income per common share

The second quarter of 2021 included a $ 5.3 million software resale transaction.

The second quarter of 2020 included restructuring charges of $ 5.0 million and the fourth quarter of 2020 included asset impairments of $ 3.9 million and restructuring charges of $ 1.6 million.

Discontinued operations relate to the discontinuance of the European based REL Working Capital group in 2018.

The fourth quarter of 2021 included a tax benefit for the exercise of 2.9 million SARs.

Quarterly basic and diluted net income per common share were computed independently for each quarter and do not necessarily total to the year to date basic and diluted net income per common share.

The fourth quarter of 2019 included restructuring charges and asset impairments of $ 3.3 million and $ 1.2 million, respectively.

THE HACKETT GROUP, INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED January 1, 2021, December 27, 2019, and December 28, 2018

YEARS ENDED December 31, 2021, January 1, 2021, and December 27, 2019

(in thousands)

Allowance for Doubtful Accounts

Year Ended January 1, 2021

Year Ended December 31, 2021

Year Ended January 1, 2021

Year Ended December 27, 2019

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data